Debt of low-income countries at record levels, World Bank says
Washington, D.C. – The World Bank reported on Wednesday that the debt of low-income countries, including those in the Caribbean, rose to a record U.S. $860 billion last year.
The development bank said while governments around the world responded to the novel coronavirus (COVID-19) pandemic with massive fiscal, monetary, and financial stimulus packages, the resulting debt burden of the world’s low-income countries rose 12 per cent.
According to a new World Bank report, even prior to the pandemic, many low-income and middle-income countries were in a vulnerable position, with slowing economic growth and public and external debt at elevated levels.
The report said external debt stocks of low-income and middle-income countries in the Caribbean and other places combined rose 5.3 per cent last year to U.S. $8.7 trillion.
An encompassing approach to managing debt is needed to help low-income and middle-income countries assess and curtail risks and achieve sustainable debt levels, the new International Debt Statistics 2022 report stated.
“We need a comprehensive approach to the debt problem, including debt reduction, swifter restructuring and improved transparency,” said World Bank Group (WBG) president David Malpass, adding “sustainable debt levels are vital for economic recovery and poverty reduction”.
The report added that the deterioration in debt indicators was widespread and impacted countries in all regions.
Across all low-income and middle-income countries, the rise in external indebtedness outpaced gross national income (GNI) and export growth.
The external debt-to-GNI ratio of low-income and middle-income countries, excluding China, rose to 42 per cent last year from 37 per cent two years ago, while their debt-to-export ratio increased to 154 per cent last year from 126 per cent two years ago, the report stated.
In response to the unprecedented challenges posed by the pandemic and, at the urging of the WBG and the International Monetary Fund, the Group of 20 countries launched the debt service suspension initiative (DSSI) in April last year to provide temporary liquidity support for low-income countries.
The report noted that the G20 countries agreed to extend the deferral period through the end of this year.
In November last year, the G20 agreed on a common framework for debt treatments beyond the DSSI, an initiative to restructure unsustainable debt situations and protracted financing gaps in DSSI-eligible countries, the report stated.
Overall, the report said net inflows from multilateral creditors to low-income and middle-income countries in April last year rose to U.S. $117 billion, the highest level in a decade.